TaxTMI 
TaxTMI 
TaxTMI 
2018 (2) TMI 1282
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.... law, the order passed by the Ld. Assessing Officer ("AO") is bad in law and void ab-initio. 2. That on facts and circumstances of the case and in law, the reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO did not record any reasons in the assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. Transfer Pricing Officer ("TPO") for computation of the arm's length price, as is required under section 92CA(1) of the Act. 3. That on the facts and circumstances of the case and in law, the Ld. AO erred in determining the arm's length price ("ALP") of the Appellant's international transactions at Rs. 17,84,63,646 as against Rs. 16,93,48,801 determined by the Appellant and recommending an addition of Rs. 91,14,845 on that account to the Appellant's income. 4. That on facts and circumstances of the case and in law, The Ld. AO/ Ld. TPO erred while making an aforesaid addition of Rs. 91,14,845 to the value of international transactions by: 4.1 modifying the comparability analysis conducted in the transfer pricing documentation of the Appellant on inappropriate and inade....
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....he Ld, AO as well as Hon'ble DRP have erred in law as well as on the facts of the case by excluding the foreign currency expenditure towards database fees amounting to Rs. 36,24,838/- from 'export turnover' without correspondingly reducing the same from the "total turnover' for the purpose of computing deduction under section 10A of the Act. 7. That on the facts and circumstances of the case and in law the Ld. AO/ Ld. TPO erred in not examining the validity of initiation of penalty proceedings u/s 271 (1) (c) of the Act. 8. That on the facts and circumstances of the case and in law, the Ld. AO erred in charging and computing interest under section 234B and 234D of the Act. That the appellant craves leave to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal as they may be advised. That, the above grounds are independent and without prejudice to each other." 4. Vide Ground Nos. 1 to 4.7, the grievance of the assessee relates to the addition of Rs. 91,14,845/- made by the AO on account of arm's length price adjustment. 5. Facts related to this issue in brief are that the assessee filed its return of inc....
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....wide Limited 3.39% 2 Allsec Technologies Limited 6.60% 3 Cosmic Global Limited 17.84% 4 Maple Esolutions Limited 25.64% 5 Caliber Point Business Solutions Limited 24.26% 6 Msource India Private Limited 6.54% Arithmetic Mean 14.04% As the assessee earned operating margin on cost at 14.77% which was within the range of +/-5%, therefore, it was contended by the assessee that this transaction was at arm's length price. The TPO, however, did not agree with the various filters used by the assessee in the TP study and by using certain more filters, he rejected 4 comparables choosen by the assessee and selected 5 new comparables. He, thus, selected a set of following 7 comparables (2 from assessee's set and 5 new companies) whose average margin was 26.67%: S. No Comparable OP/OC 1. Aditya Birla Minacs Worldwide Limited 0.50% 2. Cosmic Global Limited 48.20% 3. Genesys Intl. Corporation (Seg.) 58.45% 4. Eclerx Services Ltd. 47.00% 5. Motif India Infotech Pvt. Ltd. 10.41% 6. Omega Healthcare Management Services Pvt. Ltd. 15.43% 7. Sparsh BPO Services Ltd. 6.72%% Average 26.67 The TPO worke....
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....d the inclusion of M/s Eclerx Services Ltd. as comparable for the following reasons: "a) Functionally Dissimilar: The Company performs functions which are not comparable with that of the Appellant. - Eclerx provides services through two business units - Financial services and Sales and Marketing services. - Under financial services segment, it provides professional services including consulting, business analysis and solutions testing. Broad services provided in this segment includes trade processing, reference data, accounting and finance, and expense management activities. (Refer page 52 of Cnv. Paperbook) - Under sales and marketing services, it provides online operations & web analytics, CRN and business intelligence, competitor benchmarking and pricing etc. (Refer page 53 of Cnv. Paper book). - As per website of the company it provides "The company's service portfolio spans the range of data process and analytics services and includes activities such as reference data and risk management services, as well as financial control, accounting and reporting services, consulting services related to efficiency risk reduction and regulatory compliance, web and ecom....
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....o raised objection that this company is a Knowledge Processing Outsourcing (KPO) company rather than routine service provider. 24. Comparability of ECLERX has been examined by the coordinate Bench in case of Copal Research India Pvt. Ltd. (supra) which is also engaged into ITES services similar to that of the assessee. 25. When we examine the functional profile of the assessee company which is into providing Information Technology (IT) Enables Back Office Support Services related to creation and maintenance of data base of prospective employers and candidates who sent their resumes to Hendrick & Struggles International Inc. (HSII), the assessee provides services to HSII only having minimal risks whereas as per the information supplied by ECLERX u/s 133 (6), it is into data analytical services; operation management services; accounts reconciliation services which are aimed at reducing process errors and operational risks and that it is KPO rather than routine service provider as is evident from the annual report. 26. Comparability of ECLERX has been examined by the coordinate Bench with Copal Research India Pvt. Ltd. (supra), a similarly situated company, by making followin....
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....s Pvt. Ltd. and its functional profile, we are of the view that this company is also mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low-end services to the group concerns." 11.1. We find that the assessee also cannot be said to have relatable degree of comparability because primarily assessee was engaged in providing primary data for various field of activities but not complete business solutions. Therefore, this company could not be treated as comparable for the purpose of determining ALP of the transactions between the assessee company with its AEs. We, accordingly, direct that this company be excluded from the list of comparables finally taken by the AO/ TPO as per the direction of the DRP." 27. So, keeping in view the functional dis-similarity of assessee company with ECLERX, which is a knowledge process outsourcing company engaged in providing consulting services, process outsourcing, process reengineering and automation services, we do not find ECLERX as a valid comparable for benchmarking the international transac....
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....ign exchange are to be excluded from the export turnover in the numerator, then the same treatment have to be given in the total turnover in the denominator. We further note that ITAT, Delhi Bench in assessee's own case for assessment year 2005-06 relying upon the decision of the ITAT, Special Bench in the case of ITO v. Sak Soft Ltd. [2009] 30 SOT 55 (Chennai) has allowed the appeal of the assessee and directed the Assessing Officer to recomputed the deduction u/s. 10A after reducing communication expenses from the export turnover as well as total turnover." 18. So, by respectfully following the aforesaid referred to order in the case of DCIT Vs Global Logic India (P) Ltd., we direct the AO to reduce the aforesaid expenses out of the export turnover as well as the total turnover while working out the deduction u/s 10A of the Act. 19. Next issue vide Ground No. 7 relating to initiation of penalty proceedings u/s 271(1)(c) of the Act is pre-maturely raised, so no adjudication is required. 20. Vide Ground No. 8, the grievance of the assessee relates to the charging of interest u/s 234B and 234D of the Act. As regards to this issue, it was the common contention of both the part....
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....e on the part of the Appellant to shift the profits to any other jurisdiction since it claims tax holiday benefits as per the Software Technology Park of India. For Corporate Tax Matters: 4. Based on the facts and circumstances of the case, the Ld. AO has erred in law as well as on facts in holding that the expenditure incurred by the Assessee in foreign currency towards communication charges amounting to Rs. 69,955/- has to be excluded from the export turnover for the purpose of computing the amount of deduction under section 1OA of the Act, without appreciating the fact that the said expenses are not attributable to deliver any article or thing or computer software outside India and have not been incurred in providing technical services outside India. The same relates only to the input services used by the Assessee for software development in India. 4.1 Without prejudice to the above, based on the facts and circumstances of the case, the Ld. AO has erred in law as well as on the facts of the case by excluding the foreign currency expenditure towards communication charges amounting to Rs. 69,955/- from 'export turnover' without reducing the same from the 'tota....
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....r: Sl. No. Name of the Company Remarks 1. Aditya Birla Minacs Worldwide Ltd. This company fails export filter (60.51%). Hence, not a suitable comparable. 2. Caliber point Business Solutions Ltd. This company is having different financial year ending i.e. December. Hence, can't be considered as suitable comparable. 3. Cosmic Global Ltd. This company fails export filter (52.96%). Hence, not a suitable comparable. 4. Fortune Infotech Ltd. This company is having significant RPT (98.70%). Hence, not a suitable comparable. 5. Jindal Intellicom Pvt. Ltd. This is a suitable comparable. 6. Omega Healthcare Management Services Complete financialinformation is not available. Hence, can't be considered as a suitable comparable. 7. R Systems International Ltd. This company is having different financial year ending i.e. December. Hence, can't be considered as suitable comparable. 25. The TPO retained the only one comparable selected by the assessee i.e. M/s Jindal Intellicom Pvt. Ltd. and introduced 7 new comparables. He finally selected the following 8 comparables: Sl. No. Name of the Company OP/OC 1. Accentia Technologies Ltd. 29.18% 2. Acro....
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.... reliance was placed on the following case laws: * Techbooks International Pvt. Ltd. Vs DCIT (2015)-TII- 282-ITAT-Del.-TP * Hewllet Packard India Globalsoft Pvt. Ltd. Vs DCIT (2015)-TII-409-ITAT-Bang-TP 28. The ld. DRP observed that the company M/s ICRA Techno Analytics Ltd. was not a valid comparable for ITES segment on the ground that it was not functionally comparable. The ld. DRP did not find merit in the objections of the assessee relating to all other comparables. Thereafter, the TPO consequent to the direction issued by the ld. DRP vide letter dated 30.10.2015 revised the ALP adjustment to Rs. 2,03,88,463/- and accordingly the AO passed the impugned order by making the aforesaid addition on account of transfer pricing. 29. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that M/s Eclerx Services Pvt. Ltd. and M/s TCS e-serve Ltd. required to be excluded, since, those were not comparable and were excluded by the various benches of the Tribunal. The reliance was placed on the following case laws: * Ameriprise India Pvt. Ltd. Vs ACIT in ITA No. 2010//Del/2014, order dated 14.08.2015] * Pr. CIT Vs Copal Research India Pvt. Ltd. in ITA 894/20....
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....ries on business of providing technology service such as software testing, verification and validation. It is also developed a software such as transport management software therefore functionally this company is dissimilar to the assessee company. It also owns huge intangible and use of 'Tata' Brand, which has definitely benefited this comparable, it is directed to be excluded." 32. Similar view has been taken by the ITAT 'K' Bench Mumbai in the case of Goldman Sachs (India) Securities Pvt. Ltd. Vs ACIT in ITA No. 927/Mum/2016 vide order dated 11.01.2017 wherein the relevant findings have been given in paras 4.2 to 4.2.b which read as under: "4.2.We have heard the rival submissions and perused the materials before us. We find that the TPO had included five new comparables in the final list after rejecting comparables selected by the assessee, that DRP had held that MGSL should be included in the final list, that it upheld the exclusion of CPBSL, RSL, CVSEL, CVGL, ABMWL, that it confirmed the inclusion of EHBSPL, ESL, Infosys, TCS and AT(e-segment only) in the final list of the comparables. 4.2.a. We would like to deal with the inclusion/exclusion of the comparables by the DR....
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....eld that the company cannot be treated as comparable to a company performing ITES / BPO functions. As these decisions rendered by the Tribunal are for the very same assessment year, respectfully following the same, we direct exclusion of this company from the list of comparables. It has been submitted before us by the learned Sr. Counsel that on exclusion of these companies, the margin of the assessee would be within +/- 5% tolerance band of the arithmetic mean of the comparable companies requiring no further adjustment to the price charged. In view of the aforesaid submissions of the learned Sr. Counsel, we do not consider it necessary to deal with the other comparables objected to by the assessee as it is merely of academic interest. Ground no.2, raised by the assessee is partly allowed." Respectfully following the same, we hold that AT and ECL have to be excluded from the list of the valid comparables. 4.2.b. In the case of Capitia India Pvt. Ltd.(supra)the Tribunal had held that TCS was not a valid comparable for IT-e services in following manner: "i) M/s TCS e-Serve:- From the perusal of its Annual reports, it is seen that, this company is engaged in the business of pr....
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....ch in the case of Techbook International P Ltd (supra). On perusal of Schedule 'O' - Notes to Accounts of the Standalone financials of the Company, it is clear that the Company is engaged in "transaction processing" - and "technical services" activities. No separate segmental details are available. On a careful reading of the decision of coordinate Bench in Techbook International P td (supra) it is clear that Schedule 'O' - Notes to Accounts in respect to carried out by Company and relevant segmental details were never brought to the attention of the Bench. We find that in the absence of availability of any such segregation of the total revenue of this company, it is not possible to separately consider its profitability from rendering of "Transaction processing services". Thus, the entity level figures render this company as unfit for comparison. Following the above reasons also taken note in the case of TCS e-Service International Limited, we order for the elimination of this company from the final set of comparables". Subsequently in the case of Equant Solutions India Pvt. Ltd also this company has been held to be uncomparable on the following reasoning: "We have also consi....
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....rily to Citigroup entities globally. The Company's operations broadly comprise of transaction processing and technical services. Transaction processing includes the broad spectrum of activities involving the processing, collections, customer care and payments in relation to the services offered by Citigroup to its corporate and retail clients. Technical services involve software testing, verification and validation of software at the time of implementation and data centre management activities." 12.3 We also note that 'Segmental Information' given in Point No. 8 of Schedule 'O' - Notes to Accounts in standalone financials of the annual report shows that Company is engaged in Business Process Outsourcing (transaction processing) services to the Banking & Financial Services Industry (BFSI), which is considered as a single segment. 12.4 It was fairly conceded by Ld. AR that this company has been considered as Comparable by the Delhi Bench of Tribunal in Techbook International P. Ltd. (supra), by observing as follows: "The company's overview has been discussed on page 467 of the paper book, which divulges that this company : "is in the business of providing business process ....